Q&A With New Landlord Client

Ever since covid-19 we have been inundated with requests from new landlords to manage their rental properties. Just in 2021 alone half way into the year we have already added over 40+ units to our rentable inventory. We are on track to hit a 25% increase in inventory for 2021 and as a result – we are hiring! We are in need of office staff and qualified maintenance service technicians. We already have a great team in place but we need to add more hands on deck to keep things running smoothly.

This leads us back to the exchange of questions and answers with our newest prospective client. Here is an excerpt from our latest email exchange thread. We hope you will find this useful if you are considering taking on a new property management agency.

Hi Brian,

Ok, I have had a chance to go through the materials and have some questions that are mostly just clarification but some are in relation to the situation given the property I am pursuing. Would love to set up a time to discuss over zoom if possible as well.

First of all, I want to say that one of the things I love about the way you frame the issues is that the way you approach rentals is very much in line with my goals as a landlord. I like that your expectation is that competitive market rate rents and timely payment with immediate and consistent action if rents are late but in return for that you hold yourself to high expectations of quality, maintenance and responsiveness to tenant requests. This matches up with my philosophy that rentals are a 2 way street where if I expect to get top dollar rents I need to provide well cared for apartments and good service.

Our number #1 core value is Family First.

So now my questions/clarifications:

  1. So in reading through the credit and background check information it appears that you don’t have a specific FICO score cutoff for rental but it’s more about disqualifying activities (unsatisfied judgements, liens, collections, bankruptcy within the last 3 years, etc.). Is my understanding correct that it’s more about the specific activities vs. the score?You are correct. We have a whole screening criteria set in place before we ever even get to the credit report background screening. They need to pass all of the other hurdles first. If they qualify, then we will pull a credit check at our own expense. In this we are looking for delinquent accounts, high balances being carried, poor credit history. If they are great, then we move forward towards the lease phase. If the candidate is marginal, then we will require a co-signer that lives within the state. After the first year with a great payment history, the co-signer is no longer required. If they have too many delinquencies, we will pass on them and move to the next qualified renter until we find a match.http://www.belaire.co/blog/2019/03/09/top-10-tips-guerrilla-tenant-screening-tips-for-landlords/
  2. Similar to that, for the background check it was unclear to me what the disqualifying elements in a background check would be. I see that you ask about evictions, criminal convictions (both felony and otherwise), and registered sexual offender status. Curious which of these are informational and/or require context vs things that are disqualifying.The short answer is – it depends. Felonies are never a good start to the relationship. But again it depends on the circumstances. If they have done the time for the crime, and it was something that was not a clear pathway to putting others in harm’s way, we may consider the candidate as long as the crime would place other in fear of their safety or well-being. If drunk driving were a felony, that would not necessarily be a red flag to put other residents in harm. However, a sex offender would not be ok to rent to if children are in the building. A steady flow of evictions is never a good sign. This shows they know how to play the system and we would probably be their next contender. On the other hand, it is not uncommon for a recent divorce, or unpaid medical bills to show up on a credit report. Let’s face it. Sometimes bad things happen to good people and they really just need a second chance to get on their feet again. This would be a consideration even though the credit report may not look too good at all.
  3. It appears that you keep most or all tenants on a lease. First of all, I want to confirm my understanding is correct. I know that some landlords/property managers require a lease for new tenants but then offer tenant at will after that. Wanted to confirm that you are lease only.Sure, we do a self-renewing lease. There is a 2% to 3% annual rental increase written into the terms of the rental agreement. We also use a lease for many other reasons. With a tenant at will, or month-to-month, a tenant can move out within 30-Days or you can move them out within 30-days. The problem with a MTM is that a tenant can then open up counter-claim, interrogatories and discovery if they “feel” they are being asked to leave as retaliation or for some other reason. This can become an eviction nightmare. The typical eviction notice is 30-days after a FULL RENTAL PERIOD. Some landlords make the mistake thinking if the notice is served on the 2ndof the month then the tenant needs to move out at the end of the month. Actually, if the notice was sent on June 2nd, the next full rental period ends the last month of July. Month to month leases are also looked upon as risky to lending institutions when an owner is looking to refinance a property.Some of the main reasons we like a lease:
      1. Rental stability for the term of the lease. Usually at least 1-year
      2. A lease can be terminated within 7-days, not 30 days like a TAW
      3. During an eviction for cause, a tenant cannot counterclaim with interrogatories and discovery
      4. A long-term investing strategy with planned out rental increases
  4. For the specifics of the property I have an accepted offer on, all tenants are currently tenant at will. If I were to engage with you for property management I assume you would convert them to a lease. Is that something you would do right away and all at once or something you phase in over time (perhaps a preferred time of year for lease starts?). Just curious how you think about that transition process.The first thing we would do is to sit down with you to better understand your investing strategy for the property. Is the goal, long-term cash flow, or quick appreciation and flip, or something else? The different strategies have different management styles. As we up rents, we would have them on our leases. Typically the only time we would do a tenant at will is a year out from when you knew you would be selling the property. Maybe one or two of the units could be month to month during the sale. Banks like to see leases for stability. New owners like to see TAW for flexibility. Depending on your plans for the property, we would develop a strategy cater fit to your property goals.http://www.belaire.co/blog/2020/02/28/so-about-that-property-appreciation/
  5. As far as animals go, I see that you have a no dogs policy but other animals seem to be flexible (and incur a fee per animal). Is that something that you discuss with each landlord about which pets they would like to accept or how do you think about that? In addition to that, the property I’m purchasing already has tenants with pets (one with a dog, one with a cat, and one with a couple birds). How do you handle situations like this? Do you do this during the leasing process once you take on management of the property and add the fee for those who already have animals and make it clear to the dog owner that there are no dogs allowed?We handle animals as a case by case basis. If they are pre-existing as in your potential purchase, we will work with the residents to not create any waves. In new marketing for properties we always air on the side of no pets, then. Make concessions for good candidates. We can not refuse service animals, emotional support, or companion animals. Regardless if they are pets or animals, we do require records of all vaccinations, proper town/city licenses, and pet insurance policies in place. Some of our landlords allows pets because they know once they find a good resident who does have a pet, they will never leave because it is so difficult to find another unit that will accept the pet.
  6. Similar line of question for smoking. Obviously you can make it clear in the lease that smoking is not allowed in units. I saw for pets people can submit paperwork for service animals, emotional support animals, etc. is there something similar for medical marijuana? I did smell marijuana smoke in one of the units. It was obviously unclear to me whether it was for medical or recreational uses but people certainly can have smoke sensitivities. Do you have an exception to smoking in the units for medical marijuana (and require proof) or do you still hold to the no smoking in the units and ask tenants to smoke it outside? Just wasn’t sure where that falls legally in terms of discrimination.For medical, or recreational, we still forbid smoking within a 20 foot perimeter of the building. Medical marijuana can still have prescriptions filled for edibles, such as Marinol, so we are not discriminating against a medically protected class. However, we can restrict the ignition and burning of marijuana in the building as this can also interfere with other resident’s peaceful and quiet enjoyment of the premises. This is another reason we use our lease. Smoking in the building is a 7-Day Eviction.
  7. Final question: while I love the idea of being a high quality unit to claim premium rents there is certainly work to be done on the units in the building I will be purchasing. I bucket the types of into several types: cosmetic (painting needed including exterior paint), fixing issues (some trim and window casings are letting in water), improvements (still has many old windows, many of which seem to have no major draft or water issues but would improve energy efficiency and desirability of the units). My plan was to handle the issues that need to be fixed ASAP and then prioritize the others based on cost, perception, and other issues but not doing all of those immediately. What are your expectations around that as someone who manages high quality rentals? What are your expectations around that in terms of timeframes? Would you evaluate the property and propose the schedule and/or not take on the property until certain items are taken care of?I carry my CSL Construction Supervisor License and we have three crews working pretty steadily on our rental properties for our owners. We are experiencing a backlog of a couple of months right now working for our existing clients. We would be interested in taking on your project so long as you know in advance we are booked out until October. If your sale is going through in 6 to 8 weeks that may fit your plans. Either way, we may be able to hire some third party crews to help out if needed. We would take on the property as pretty much normal operations, then manage the crews and work schedules with the residents. It is always easier to work in an empty building but sometimes this is not possible and we need to work around resident’s schedules.

 


What’s on Your Mind?

Do you have any other ideas on this topic you could share to help our online community? Please chime in to share a comment or review. All feedback is welcomed. Thank you in advance for your continued support!

Warmest regards,

Brian Lucier
President
NWCLA.com

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